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ONGC rider on gas supply puts IPCL sale in a limbo

P. Manoj

NEW DELHI, March 11

OIL and Natural Gas Corporation's (ONGC) move to re-negotiate the gas supply agreement for the Gandhar and Nagothane plants with the post-divestment owner of Indian Petrochemicals Corporation Ltd (IPCL) has put in a limbo the Government's plan to privatise the company.

IPCL's plants at Gandhar and Nagothane are fired by gas supplied by the State-owned ONGC for which the two entities had signed an agreement valid up to 2006.

But, the Government's disinvestment managers are stumped by a proposal from ONGC to terminate the existing gas supply agreement signed with the IPCL management as soon as the company is privatised.

ONGC has also told the Government that it plans to re-negotiate the gas supply deal with the new owner of the petrochemicals giant identified by the Government through a competitive bidding process.

"But, the bidders have told the Disinvestment Ministry that they would like to know what they are bidding for," a senior official with the Disinvestment Ministry told Business Line.

Indian Oil Corporation, Reliance Industries Ltd and Nirma Industries Ltd are in the fray to buy 26 per cent of the Government's stake in IPCL along with management control.

The Government has finalised the draft shareholders' agreement for the deal, but clarity over the gas supply contract signed with ONGC is holding up its plan to invite financial bids from the three bidders.

"We are trying to conclude the deal by March; but it may spill over to April. All depends on how fast the gas supply agreement issue is sorted out with ONGC," the official said.

ONGC's move to re-negotiate the gas supply agreement with the new management of IPCL has drawn flak from the Disinvestment Ministry.

"The gas supply agreement does not undergo any fundamental change on transfer of ownership of the company from Government hands to the private sector. The agreement signed by ONGC should be honoured till it expires in 2006 as IPCL would continue its operations as a corporate entity," the official remarked.

The Government has put IPCL disinvestment process on the fast track after the Cabinet Committee on Disinvestment (CCD) cleared a revised plan last November to sell its equity in the company.

As per the decision taken by the CCD, the Government will sell 51 per cent of its equity in IPCL in two stages.

In the first stage, it will offload 26 per cent of its equity along with transfer of management control to a strategic buyer. Following the strategic sale, the Government will sell another 25 per cent of its equity, taking the total equity that is being divested to 51 per cent.

In the second round of disinvestment, the Government proposes to sell its residual 25 per cent stake in tranches of 10 per cent or less every year till the 25 per cent limit is attained in a time-frame of three years.

The strategic buyer will have the first right of refusal over the residual Government stake in IPCL.

In case the strategic partner refuses to buy the residual stake from the Government, this will be sold in the market.

The Government currently holds 59.9 per cent equity in IPCL while banks, financial institutions and public hold the remaining shares.

The Government has already rejected IOC's plea to ban Reliance from participating in the bidding process citing monopoly reasons.

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